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Market Actors & Behaviour by Erik.Ranheim@INTERTANKO.com Manager Research and Projects Copenhagen Business School Oslo 19 February 2008 ‘. Tanker industry. Market. Technology. Finance. Regulations. Focus on the tanker industry.

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Market Actors & BehaviourbyErik.Ranheim@INTERTANKO.comManager Research and ProjectsCopenhagen Business SchoolOslo 19 February 2008‘

tanker industry
Tanker industry

Market

Technology

Finance

Regulations

focus on the tanker industry
Focus on the tanker industry

Tanker industry carries one of the worlds most strategic commodities from some of the politically most tense areas in the world .

Oil can potentially cause serious pollution .

After many years with negative or low profitability over the last years, the tanker industry has during this decade made extremely good profit and has even received attention in the world stock markets

tanker market
Tanker market

Cargo Owner/ Refiner/Trader

International Regulations

Charterer

IMO

Shipbrokers

Shipowner

Pool/commercial man

what is imo
What is IMO?

International Maritime Organization

  • The International Maritime Organization (IMO) is the specialized agency of the United Nations (UN) concerned with Maritime Affairs located in London, England.
  • IMO (Formerly known as IMCO) was established under a 1948 United Nations convention that entered into force on 17 March 1958.
  • IMO currently has 168 member states, 2 associate members, 51 Inter-Governmental Organizations which have concluded agreements of cooperation, and 66 Non-Governmental Organizations in Consultative Status with IMO.
why is there a need for imo
Why is there a need for IMO?
  • Shipping is international
  • Assets move between jurisdictions
  • Need for universally applied standards

Without IMO trade would be restricted

what does imo do
What does IMO do?

IMO’s main objective is tofacilitate co-operation among governments on technical and legal matters affecting international shipping

Work to achieve the highest level of international standards for maritime safety, maritime security and protection of the marine environment.

This is accomplished through the development of international conventions, codes, and recommendations.

imo has adopted 55 conventions protocols including
IMO has adopted 55 conventions & protocols, including:
  • Safety of Life at Sea (SOLAS)
  • Prevention of pollution from Ships (MARPOL)6 Annexes
  • Preventing Collisions at Sea (COLREGS)
  • Loadlines
  • Standards of Training, Certification, & Watchstanding (STCW)
imo has developed 25 codes including
IMO Has Developed 25 Codes, Including:
  • Ship and Port Facility Security (ISPS)
  • Safety Management (ISM)
  • Standards for Training and Watchkeeping
  • Maritime Dangerous Goods (IMDG)
  • Construction and Equipment of Ships Carrying Dangerous Chemical in Bulk
  • Solid Bulk Cargoes
  • High Speed Craft
  • Construction and Equipment of Mobile Offshore Drilling Units
imo has developed more than 700 recommendations guidelines including
IMO has developed more than 700 recommendations & guidelines, including:
  • Safe access to and working in large tanks & large cargo holds
  • Emergency towing requirements – tankers
  • Medical first aid guide for use in accidents involving dangerous goods
  • Safe use of pesticides in ships
  • Packing Cargo in Freight Containers
  • Provisions and Display of Manoeuvring

Some guidelines/recommendations are required to be followed by charterers

imo facts
IMO Facts
  • Annual Budget 24 m
  • Member States fund IMO budget through assessments based largely on size of fleet(% of world’s gross tonnage)
  • Secretariat –

320 Staff Members

50 Nationalities

structure of imo
Structure of IMO

Subcommittees

imo process
IMO Process

Proposal by

Member

State

Maritime

Safety

Committee

Approval by Assembly or other Action as Appropriate

Appropriate

Subcommittee

Working Group

major issues on imo s agenda
Major Issues on IMO’s Agenda
  • Air Pollution from Ships
  • Role of the Human Element
  • Goal-based new ship construction standards
  • Maritime Security
  • Member State Assessment
  • Ballast Water Management
  • Recycling of Ships
new approaches emerging at imo
New Approaches emerging at IMO?
  • Proactive vs. Reactive

Goal Based Standards

Maritime Security

  • Performance Based vs. Prescriptive

Ballast Water Management

delegations to imo meetings
Delegations to IMO Meetings
  • Delegations consist of Government and/or Industry/Public Sector Advisors
  • Decisions on who goes are made by the Head of the Delegation to each meeting
  • Decisions are based upon specific issues to be discussed at each session
  • Individuals are recommended based on a specific area of expertise or on organizational representation
  • Expenses to attend IMO meetings are normally covered by the individual
imo demographics have changed
IMO demographics have changed
  • Break up of USSR
  • Establishment of “Bloc” groups

European Union

GOLACC (Latin America)

  • Developing nations wanting a bigger say
  • Change in world’s fleet
world s gross tonnage top ten 1982
Liberia

Greece

Japan

Panama

United Kingdom

USSR

Norway

United States

France

Italy

World’s Gross TonnageTop Ten – 1982
world s gross tonnage top ten 2007
Panama (4)

Liberia (1)

Bahamas

UK (5)

Marshall Islands

Singapore

Greece (2)

Malta

China

Cyprus

World’s Gross TonnageTop Ten – 2007
intertanko s role
INTERTANKO’S ROLE
  • As an NGO*, we represent tanker industry by:
  • Submitting proposals (w./without co-sponsorship)
  • Written comments on proposals
  • Verbal comments at meetings
  • Participating in working groups
  • Lobbying for support on issues
  • Demonstrating a proactive responsible role

*None Government Organisation

tanker market24
Tanker market
  • Volatile
  • Dynamic, and
  • Open market
  • Congestions, storage slow steaming, imperfect information
  • Large number of actors
  • Great variety of players
  • Unpredictable?
  • Perfect market?
development tanker ownership
Development tanker ownership
  • Oil producers
  • Oil companies
  • Traders
  • Refineries
  • Wilh. Wilhelsen first tanker 1913 – 10 tankers by end 1st WW
  • Norwegian pioneers (whale oil)
  • Independent owners increased activity in the 1920s, mainly long term contracts
  • Greeks, liberty ships after 2nd WW
world oil importers 52 6 mbd 2006
World oil importers - 52.6 mbd - 2006

32%

Mainly open markets for tankers

China quickly building up tanker fleet

8.3 m dwt 4.6% of world oil tanker fleet

7%

10%

80% Japanese – long term contracts

43.2 m dwt 11.1% of world oil tanker fleet

26%

26%

Open markets for tankers

Source: BP, various

mbd

world largest oil exporters 30 3 mbd 35 of consumption 58 of export
World largest oil exporters – 30.3 mbd35% of consumption - 58% of export

Pemex

PdVSA

KOTC

Statoil

NIOC/NITC

Saudi Aramco/VELA

Gasprom/Sovcomflot

mbd

development shell controlled fleet
Development Shell controlled fleet

No tankers

Marcus Samuel built Murex at Gray’s shipyard in UK 1892

major oil company controlled vlccs owned and on long term contract 1 year
Major oil company controlled VLCCsOwned and on long term contract (1 year +)

m dwt

Source: J.G. Olssen Kristiansand

major oil company controlled vlccs owned and on long term contract 1 year33
Major oil company controlled VLCCsOwned and on long term contract (1 year +)

no VLCC

2007

Oil34%

TC

Chinese and Middle east companies increasing their fleets

Spot45%

Source: J.G. Olssen Kristiansand

should oil companies own tankers
Should oil companies own tankers
  • Vertical integration is most attractive when different types of market failure exist that threaten profitability. Bringing production in-house allows a company to internalise and thereby overcome market failures. The strategy is not without its own costs in terms of efficiency and price .
  • Vertical integration is best where the activity in question is complex and hard to define under conventional legal contracts.
  • Vertical integration is attractive when outside suppliers are few and likely to behave opportunistic, exercise market power.

When economics means business, Sultan Kermally

market value biggest oil cos m world 2nd 3rd biggest co one tanker co
Market value biggest oil cos $m(+ world 2nd 3rd biggest co, one tanker co)

Exxon merged with Mobil, small tanker fleet

Shell few tankers

BP merged with Amoco – large tanker fleetTotal merged with Final/Elf, - few tankers

Chevron merged with Texaco - some tankersConocoPhilips US Jones act fleet (expensive)

Petrobras – large tanker fleet

Statoil sold tanker company

$ bn

Source: FT500

why oil companies by each other
Why oil companies by each other
  • Horizontal integration merging of firms which are at the same level of production or are involved in similar processes
  • Horizontal integration competitive to achieve positioning of the firm vis-a-vis rivals.
  • Horizontal integration to achieve economics of scale.
  • Horizontal integration to acquire technology and knowledge

When economics means business, Sultan Kermally

20 largest spot charterers 2007 57 of total
20 largest spot charterers 2007– 57% of total

Among the 20 biggest charterers are: - the major international oil companies (Shell, Exxon, BP) - typical tradersVitol/ Clearlake), - national oil companies (Indian Oil Co/UNIPEC/ Petrobras and- refiner Valero.

Largest market share Shell has 7.5% and Shell is among the biggest charters in all segments

No fixtures

Source: Poten&Partners

10 largest vlcc spot charterers 47 of total
10 largest VLCC spot charterers – 47% of total

2007

  • Among the 10 biggest charterers are:
  • - Oil importers Sinochem, SK IOC, UNIPEC
  • Major international oil companies, Shell, Exxon, BP- oil exporters, CPC, VELA
  • Largest market share ExxonMobil has 7.1% share
  • No Japanese charterers
  • Less than half the VLCC fleet is in the spot market

No fixtures

Source: Poten&Partners

10 largest suezmax spot charterers 48 of total
10 largest Suezmax spot charterers – 48% of total

2007

Largest market share ExxonMobil has 3.2% share

Sun US importer

No fixtures

Source: Poten&Partners

10 largest aframax spot charterers 47 of total
10 largest Aframax spot charterers – 47% of total

Largest market share Shell has 8.2% share

Whereas it is the VLCC market which is highlighted, the activity in the Aframax market is 2.3 times bigger

No fixtures

Source: Poten&Partners

10 largest aframax spot charterers 47 of total41
10 largest Aframax spot charterers – 47% of total

Largest market share Shell has 8.2%

Whereas it is the VLCC market which is highlighted, the activity in the Aframax market is 2.3 times bigger

No fixtures

Source: Poten&Partners

10 largest clean spot charterers 36 of total
10 largest Clean spot charterers – 36% of total

Largest market share the trader Vitol has 7.4% share

No fixtures

Source: Poten&Partners

oil industry stock declining
Oil Industry stock declining

Days forward demand

Low stock – greater volatility – gives oil companies less bargaining power

Source: IEA

vlcc freight rate brent blend oil price
VLCC freight rate/Brent Blend oil price

$/per day freight rate

$/per barrel oil price

Strong volatility – great uncertainty

Source: IEA

cost of oil freight insignificant
Cost of oil freight insignificant

Gasoline prices at the pump $/gallon Dec-07

Real and nominal oil price and freight rate

Volatility in the oil market more important than volatility in freight rates

Oil price much more important for oil companies that freight rates

Source: IEA/Various

oil company vetting
Oil company vetting
  • OCIMF* question whether flag, port and Class inspection can be trusted.
  • OCIMF has established a comprehensive ship database – SIRE** - sharing information
  • Both ships and operators inspected
  • If these entities enforced/followed the rules effectively there would not be a SIRE ProgrammeSIRE exists to minimise as far as possible, the risk to oil companies of chartering

*Oil Companies International Marine Forum host

**Ship Inspection Reports Programme database for inspection reports submitted by charterers (some 1200 per year) started 1993

Source: Presentation by David Savage SIRE Director, Nov. 2007, INTERTANKO seminar

oil company vetting47
Oil company vetting
  • If these entities (Class, Flag/Port State) enforced/followed the rules effectively there would not be a SIRE Programme
  • SIRE exists to minimise as far as possible, the risk to oil companies of chartering sub-standard tankers.
  • Rise in Management Cos. resulted in lack of knowledge regarding operator, vessel condition and standards of operation in the 1980s
  • Tankers that are never inspected
  • under SIRE comprise what is called “The Grey Fleet (2,000 out of 8,00 tankers)

Source: Presentation by David Savage SIRE Director, Nov. 2007, INTERTANKO seminar

tanker ownership
Tanker ownership

Greece, Norway, Germany; UK

Japan, China, Singapore; HK

Independent ownership concentrated in few nations

m dwt

Source: LRFairplay database

20 largest tanker owners
20 largest tanker owners

33 % of total

more that 1000 owners

489 owners 1 tanker

146 owners 2 tankers

130 owners 10 tankers+

i.e. great fragmentation

Strategies:

* Shuttling oil to Japan(Mitsui/NYK)

* Competing for cargoes in the open market

* Bringing oil closer to the market (Saud Aramco)

* Taking advantage if increased domestic import (CSG/India Gov)

* Strategic alliance (Dr. Peters, OSG)

* Carrying own Cargoes (BP)

m dwt

Source: LR/Fairplay

20 largest aframax tanker owners
20 largest Aframax tanker owners

6% share

33 % of total

Some 190 owners

67 owners 1 tanker

32 owners 2 tankers

15 owners 10 tankers+

Strong fragmentation

Aframax tanker best suited for US ports

Pools;

Aframax Internal 38 tankers 8 owners

Torm LR2 pool

Teekay 6%, market share, increased fleet by consolidation

m dwt

Source: LR/Fairplay

20 largest vlcc tanker owners
20 largest VLCC tanker owners

58 % of total

Some 120 owners

14 owners 2 tankers

52 owners 1 tanker

13 owners 10 tankers+

Two Japanese owners on top

Aramco largest oil co

One big pool:

Tankers International47 VLCC 15 m dwtTMT bought many tankers for conversion to dry bulk

m dwt

Source: LR/Fairplay

end remarks
End remarks
  • Close to a perfect market
  • A great deal of consolidation but still fragmented tankers ownership
  • National oil companies are becoming stronger
  • Many companies with different strategies makes the market dynamic
tanker market54
Tanker market

CARGO OWNER/ Refiner/Trader

International Regulations

Charterer

IMO

Shipbrokers

Shipowner

Pool/commercial man

tanker market players
Tanker market players
  • Oil producers (OPEC)
  • Oil companies
  • Traders
  • Refineries
  • Tanker owners:
    • Independent
    • State owned
    • Oil companies

Tanker

ownership

tanker market unique
Tanker market – unique?
  • Large number of shippers/charterers
  • Large number of receivers